NAV’s team is well-versed in free partnership valuations. We have worked closely with multi-generational family businesses and their trusted advisors in the initial and continuing valuation requirements for these Section 2701/2703 complex assignments.

Our professionals leverage our business valuation and preferred stock expertise. Both are necessary for these assignments. 

Overview of IRS Section 2701/2703 and Freeze Partnerships

Simply put, freeze-planning deals have grown in popularity in recent years. The aging boomer population can achieve income yield for retirement and efficient gifting in a partnership freeze structure, whether a PLP (preferred limited partnership) or an LLC.

The freeze structure also suits the transfer of growth assets likely to increase considerably or steadily. Furthermore, the valuation analyst may apply a discount for lack of control (“DLOC”) and a discount for lack of marketability (“DLOM”).

The following steps below introduce the core steps of such an assignment.

Step 1: Business Enterprise Valuation of all Capital Classes

We perform the business enterprise valuation to value all capital classes and the business overall. Since the freeze partnership structure focuses on a preferred equity class (generally owned by the senior owners or family members), we analyze the preferred equity and its intricacies regarding priority returns, liquidation preferences, and cash flow preferences.)

Step 2: Preferred Stock Valuation Sets Freeze Partnership Preferred Yield Rate

NAV’s team deploys our experience valuing credit and preferred equity since the process for valuing each exhibits core common fundamentals. The steps are as follows:

• A preliminary analysis of issuer characteristics and payment risks is known as capacity analysis.
  

• Credit/benchmark analysis of guideline public company issuers.
  

• Another step is to consider the subject company’s ability and intent to pay any preferred stock liquidation value.

• Financial modeling of projected dividends, notably any cumulative preferred or non-cumulative preferred dividends
  

• Study of any other preferred stock features embedded in the agreement
  

• Benchmark the comparable guideline company preferred stock yields to help select the preferred rate for the subject company's freeze partnership structure.
  

Step 3: Perform Efficient Preferred Stock Valuation Updates

We scale with clients to provide cost-effective updates when performing the annual preferred stock valuations for freeze partnership rate compliance, a process leveraging our existing reports, market data, and familiarity with the subject company.

How We Are Transparent

Our efficient and periodic updates at reduced fees both help substantiate a current analysis and save client money in the process.

Please get in touch with us for more information and client references.